Sydney IT accounts manager Rob Cooper is one homebuyer who’s looked outside the square. He rents in Woolloomooloo but can’t afford to buy there, so he’s purchased a rental property in a trendy city suburb more than 1,000 kilometres away, in Adelaide.

The median house price in Adelaide is $455,000 compared to Sydney’s $900,000.

“So, West Croydon is the suburb. It’s about 7km away from the city and it was just under $700,000 for a three-bedroom house,” Mr Cooper told 7.30.

“I feel it’s good value for what you get and certainly has the potential to grow, which is the main thing.”

Mr Cooper is part of the generation dubbed “rent vestors” — people who rent where they want to live and buy an investment property somewhere they can afford, with the help of tax perks like negative gearing.

He bought the rental with the help of Bryce Holdaway’s property-investment firm.

Mr Holdaway, a buyer’s agent, described the purchase price as “laughable”.

“In some cases you can’t even pick up a one-bedroom apartment in the same distance, let alone a three-bedroom house on a parcel of land,” he told 7.30.

Mr Holdaway first saw an opportunity in Adelaide about 18 months ago, because homes were affordable and rental returns were good.

“The reason we went to Adelaide were the three Ls — location, land and looks,” Mr Holdaway said. “You can get terrific locations … within 5km of the Adelaide CBD that’s got a beautiful period home on a 600 or 700 square-metre land, well under $1 million.

“Being in that early part of the growth cycle, where you could pick something up that seemed ridiculously cheap by Melbourne and Sydney comparison, was really enticing.”

There is no official data to show how many homes are being snapped up by investors but according to realestate.com.au there had been more than 1 million internet searches on South Australian properties from the eastern states in the past six months alone. The number of searches from Victoria was up 68.6 per cent.

Find out more from the original source: http://www.abc.net.au/news/2017-08-01/cant-afford-sydney-or-melbourne-house-investors-look-to-adelaide/8748210

In reality, Australia’s residential investment market is dominated by people who, having bought their own home, have moved onto buying an investment property. These small-scale investors own 83 per cent of all investment properties.

Previous research shows that real estate investors tend to be married, wealthy males with high income and full-time employment.

A typical rental housing investor is a high-income earner or family partnership, owning one or two dwellings as an extra income source. The probability of becoming a residential investor tends to increase with age and homeowner status, but declines after the age of 65.

With home ownership rates in Australia at around 70 per cent, the Australian Bureau of Statistics (ABS) reports that residential investment represents, on average, 35 per cent of all housing finance, while the rest are all owner-occupiers. This means residential investment is an important part of the mortgage market and banking system.

Most residential investment is centred around rent or resale; only a small proportion goes on construction of new homes. And residential investment by corporations or big companies represents only 8 per cent of the market.

Private data from a major mortgage provider used in my research (for the period 2003-09) reveals what the typical real estate investor looks like. They are on average 42 years old, 72 per cent are married, and fewer than two-thirds of investors get finance with a co-borrower. Only a third of investors are female.

According to the same data, residential investors have an average net monthly income of $8,600, or $103,200 a year. But if we exclude the 100 investors with a net monthly income over $100,000, the average net monthly income becomes $6,617, or $79,404 a year.

Residential investors, financing the property with a mortgage, have on average $934,091 in net wealth (50 per cent of investors have $581,541 in net wealth). Some of them have diverse portfolios; six sources of investors also own shares with an average value of $4,884.

The data also show that direct residential investors are mainly professionals, in management positions, small business-owners, or workers with a skilled trade. Overall, 27 per cent are self-employed, relative to the 19 per cent of self-employed owner-occupiers.

Where they invest

The data reveal that direct residential investors invest mainly on existing houses, as do owner-occupiers when buying a property. The ABS reports only 3 per cent of investors’ financial commitments are destined for construction of new dwellings.

Our data shows that residential investors are more willing to invest interstate or in a different postcode than owner-occupiers. While almost half of residential investors invest in a property located in a different postcode to where they live, 11 per cent of residential investors buy properties in states other than the state where they live.

Most residential investors choose rural and regional areas to invest. Many residential investors choose to buy property in big metropolitan cities like Sydney and Melbourne.

However, the top 10 postcodes chosen by residential investors to buy property (between 2003 and 2009) include Cairns (QLD), Mandurah (WA), Torquay (VIC), Mackay (QLD) and Launceston (TAS).

Why do they invest?

Our research shows the main reasons for accessing finance to buy a house, other than to live in it, are income and wealth accumulation.

Some investors invest because they see it as a long-term, secure, “bricks and mortar” investment. To these investors other types of assets (such as shares and bonds) may seem harder to understand and it may be more costly to enter these markets.

A proportion of real estate investors see it as a source of permanent income, while others speculate on the potential capital gains in real estate and invest expecting to increase their wealth.

This reason becomes more prominent during periods of strong house price appreciation. For example, between 2003 and 2009 year-to-year average house price inflation has been 8.9 per cent.

Academics have also argued that the Australian taxation system motivates — rather than facilitates — housing investment, as investors are able to access 50 per cent deduction on capital gains and negative gearing. Another motivator to invest in real estate may be more mortgage finance access; for example, between 2003 and 2009 the average 12-month housing credit growth has been of 14.6 per cent.

Of course there are other reasons to invest, such as moving up or down and maintaining other property as an investment, or getting a holiday home and keeping it as an investment too. There are also “unintentional” real estate investors that may have inherited or acquired property.

Most residential investors are your average Australians, who invest in rural or regional areas as a secondary source of income and to gain equity. So when thinking about who is the typical Australian retail investor, you could probably look at your neighbour.

Source: http://www.abc.net.au/news/2017-08-01/who-is-the-typical-investor-in-the-australian-property-market/8764504

The difference is usually in the timing.

I’m not talking about timing of the market where you buy at the bottom and sell at the top, (as if you can ever accurately pick those times anyway). No, I’m talking about you and the time you are right to move from investing to speculating.

You see, there is a significant difference between investing and speculating and to understand what I mean by that I think it’s instructive to look at the definition of each one.

According to Investopedia.com

“Speculation is the act of trading in an asset or conducting a short term financial transaction that has a significant risk of losing most or all of the initial outlay with the expectation of a substantial gain.”

While investing is defined as;

“Investing is the act of committing money or capital to a long term endeavour such as real estate with the expectation of obtaining an additional income or profit.”

One method has high risk attached to it and the other is a measured, long term approach to making money. Each method can make you money, no question about it. Looking at it another way we can say that your risk level will decide which way you will invest.

Searching for big profits quickly falls into the speculative camp while investing for the long term falls into the investor category. Again, both types can make money but the risk of losing it goes up with the level of speculation involved.

At CPS Property we want all of our clients to be better off after they have seen us. For most people this means that they are either new to investing or need more education in the fundamentals of property investing.

To fulfil this need we created our CPS Methodology and Asset allocation which is used to identify potential growth suburbs and to select the right property at the right price in the right location.

A long term investor will work their way towards a property portfolio using the same basic fundamentals each time. This type of methodology provides consistent results over the long term and is symptomatic of a systematic approach to successful investing.

By applying the key criteria we identified suburbs that our competitors weren’t recommending which made us pioneers if you like. Not everybody agreed with our selections but the interpretation of the data was very clear.

Even today, I still remember a potential client handing back a contract for a 1 bedroom Studio in Surry Hills priced at $420k because they thought there wouldn’t be any growth in that area after the GFC – I should mention that the same property is now selling in Surry Hills is $750K, just on 5 years later.

Naturally, we have identified other suburbs with similar results so we have no problem applying the CPS Methodology to locate new opportunities.

It’s worth pointing out that the CPS methodology cannot be used to identify opportunities for speculators. It utilizes data that can be interpreted for long term investment, reducing the risk to our clients. It’s a serious long term solution to investing in property.

Another difference between the two investor types is an Investor can benefit from the advice of a Financial Planner. Long term low risk investments fit nicely into a Financial Plan. After all, a Financial Plan is looking to get the result you are looking for, over a given time frame, and in line with your risk profile. It would be difficult, to say the least, to design a Plan that incorporates high risk, short term investments and still be confident of success.

The fundamentals we apply for our clients are designed to provide an acceptable level of risk in conjunction with an achievable Plan using a property that fits our methodology.

We also like to educate investors on how they can improve by reviewing their current property portfolio and borrowing position. Listening to the noise in the media and avoiding educating yourself is a sure way to create confusion.

Given that this is the message we have been preaching since 2005 there is little reason to change a successful formula.

Jacob O’Neill

Principal.   

In Australia, we’re seeing a rise in rental yields, and while a good indicator on a sound investment, an investor shouldn’t rely solely on this information to make purchasing decisions. Here are a few tips on why you shouldn’t rely on rental yield alone when it comes to your next investment decision.

Look beyond rental yield

Rental yield shouldn’t be seen as a guarantee of future growth by hopeful investors, as it is far too simplistic to provide a comprehensive overview of a property’s potential performance. As author of Real Estate Riches Dolf de Roos says, “are we talking gross or net returns? Pre-tax or after tax?”. De Roos goes on to explain that for residential real estate you have to remember to remove insurances, rates and maintenance costs to arrive at the net yield. This alone can often mislead investors. While yields provide some information about the property, it’s merely a snapshot in the overall property performance.

Use the resources available to you

Unlike rental yield, there are resources available to you that can paint a full picture of the property’s current, and potential performance. Many software programs have been developed to help analyse relevant data including vacancy rates, inflation, costs, insurances and maintenance, revealing anticipated yields as well as equity growth.

This level of sophistication is scarcely used by investors and landlords, which is unfortunate considering the true impact it could have on purchasing and investing decisions.

See the bigger picture

Although software can be pivotal in purchasing decisions, it is limited when it comes to individual circumstance or investor questions. There will always be additional factors or queries that a computer simply cannot answer, for instance, “should I invest in the Chinese market if I cannot speak Mandarin?” Each investor is going to have a unique set of circumstances, which is why engaging with a financial planner or with a local real estate agent will assist in making decisions that suit your situation.

Think about the future

Purchasing an investment property is a long-term strategy. Although analysing the current market performance is crucial upon purchase, it’s just as important to think about the future. When you’re weighing up your options it’s worth considering the following;

• Buying below market value
• Buying a property which can be renovated or upgraded
• Buying in an area with good capital growth potential

Rental yield, although worthwhile considering, is not the golden ticket to making a decision. Capital growth is equally as important as it will allow you to sell at a profit. Combining this with a renovation or substantial upgrade, will then allow you to increase the rent in the short term. If you successfully purchase a property in the right location, add value through renovation and therefore acquire capital growth, you’re more likely to be able to use this new equity to purchase another investment to replicate your success.

To discuss your investment options, contact CPS today.